In the Press
27 December 2011
Affluent individuals shy away from sharemarket in favour of cash
Andrew Main
The Australian
Australia's wealthy are abandoning new sharemarket investments in droves for the safety of cash, acccording to a report.
Research group CoreData calculates that high net worth individuals (HNWIs), classified as having $1 million to invest apart from their property and superannuation, are piling up savings by keeping 12c in every dollar they earn or twice their usual rate.
"This decoupling between wealth and shares is happening in Australia now for the first time since the oil shock of 1974." CoreData head of research Andrew Inwood said.
Mr Inwood said there were fewer than 200,000 Austraolians classified as HNWIs, of which about half were effectively "standing outside the equity market".
HNWIs tend to need less advice when they are investing mainly in cash.
Australians are the world's wealthiest people on a median basis, according to a recent Credit Suisse Global Wealth Report, with each person being worth about $215,000, almost four times the figure for a US adult.
An Austrade report issued in June last year rated Australia as the third largest private wealth market in the Asia-Pacific region and the 11th largest in ther world.
It said the Australian pool of HNWIs, with average wealth of $2.94m, is about 30 per cent greater thanthe pool of Singapore and Hong Kong combined.
It calculated that between 2009 and this year, the combined wealth of Australia's HNWIs increased by 12.1 per cent to about $600 billion.
Mr Inwood said Australia's total retail cash pool was at a historic high of about $562b, according to figures provided by the Australian Prudential Regulation Authority, out of an equally historic pool of $1.5 trillion of cash deposits.
"Not only is cash in the investments system building up at an unprecedented rate but confidence in the economy as a whole is subdued and hovering around the lows it hit during the GFC." he said.
Australian Private Banking Council director Alan Shields said that although Australian HNWIs has a well known "home-bias" in preferring Australian equities, that preference for investing in equities over cash had dropped to the lowest level he had seen.
He quoted a recent survey by his organisation of HNWIs, which stated that out of a possible five-point "full agreement" socre, his sample voted 3.34 for Australian equities against 3.4 for cash, 3.37 for residential property, 2.95 for international equities and 2.88 for corporate bonds as a preferred investment destination in the next 12 months.
Mr Shields said most HNWIs did not use private bankers: "We calculate that of the $600bn in assets that HNWIs have in Australia, outside of property but including super, only about $120bn is in the hands of private banks.”
Mr Inwood said his CoreData study found there had been a move against private banking by some customers.
“During the lead-up to the global financial crisis, the banks were profiting from the desire of Australia's HNWIs to participate in every opportunity."
"But at a time like now, when the market outlook is less certain and the investment cycle has been delayed, the role of the banks is less clear.''
Mr Inwood said the preferences of private banking customers in Australia "has drifted from the boutiques to the big four banks, most notably Westpac''.
"The banks most noticeably suffering are the international brands like Goldman Sachs, UBS and Credit Suisse, as the market for international shares and investments evaporated,'' he said.
And hardest hit among the local private wealth managers were Macquarie and Perpetual, which according to CoreData have both seen their customer satisfaction hit eight-year lows.
"While Macquarie scores well for some of the elements of the research, it seems that the type of investor they have attracted is particularly fickle when the deal flow dries up.'' He said Perpetual had suffered because of "continuing speculation about staff changes and reshuffles, combined with a tough time for their flagship investment vehicle, the Perpetual Australian Industrial Share Fund''.